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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934
For quarterly period ended December 31, 1997.
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Commission File Number 0-22610
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VALUESTAR CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1202005
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(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
1120A Ballena Blvd., Alameda, California 94501
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(Address of principal executive offices) (Zip Code)
(510) 814-7070
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.00001 par value 8,591,246
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(Class) (Outstanding at February 2, 1998)
Transitional Small Business Disclosure Format (check one): YES NO X
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<PAGE>
<TABLE>
VALUESTAR CORPORATION
INDEX
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
<S> <C>
Consolidated Balance Sheets as of December 31, 1997 and
and June 30, 1997 3
Consolidated Statements of Operations for the three and six
months ended December 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the six
months ended December 31, 1997 and 1996 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
</TABLE>
2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VALUESTAR CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
December 31, June 30,
1997 1997
----------- -----------
ASSETS
<S> <C> <C>
Current Assets
Cash $ 172,427 $ 44,225
Receivables - net 290,811 295,542
Inventory 7,200 27,863
Prepaid and other -- 7,035
470,438 374,665
Deferred costs - net 153,774 134,085
Property, equipment and intangibles - net 47,212 49,422
$ 671,424 $ 558,172
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank line of credit (Note 5) $ 250,000 $ --
Accounts payable 249,740 373,226
Accrued expenses 63,204 112,277
Deferred revenue 23,200 22,720
Notes payable (Note 6) 100,000 30,000
686,144 538,223
Long-Term Debt (Note 6) 250,000 100,000
936,144 638,223
Stockholders' Deficit (Note 7)
Common stock, $.00025 par value,
20,000,000 shares authorized,
8,591,246 and 8,326,246 shares issued
and outstanding, respectively 2,148 2,082
Additional paid-in capital 4,036,785 3,759,351
Accumulated deficit (4,303,653) (3,841,484)
Total Stockholders' Deficit (264,720) (80,051)
$ 671,424 $ 558,172
<FN>
See accompanying notes to interim consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
VALUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 267,477 $ 240,201 $ 791,693 $ 509,456
Costs and Expenses:
Cost of revenues 100,743 138,173 254,258 251,346
Sales costs 193,949 134,385 370,521 374,312
Marketing and promotion 33,438 37,726 295,116 218,108
General and administrative 163,116 115,489 318,770 246,585
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491,246 425,773 1,238,665 1,090,351
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Loss from operations (223,769) (185,572) (446,972) (580,895)
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Interest expense (9,968) (1,500) (15,197) (2,000)
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Net loss $ (233,737) $ (187,072) $ (462,169) $ (582,895)
==========================================================================
Net loss per common share $ (0.03) $ (0.03) $ (0.06) $ (0.08)
==========================================================================
Weighted average number of
common shares outstanding 8,404,888 7,026,818 8,365,567 7,026,818
==========================================================================
<FN>
See accompanying notes to interim consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
VALUESTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
December 31,
1997 1996
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Cash Flows from Operating Activities
Net loss $(462,169) $(582,895)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 5,198 4,333
Warrants issued for services 20,000 --
Changes in assets and liabilities:
Accounts receivable 4,731 (73,444)
Inventories 20,663 10,071
Prepaid expenses and other 7,035 829
Deferred costs (19,689) (98,482)
Accounts payable (123,486) 34,123
Accrued Expenses (49,073) 53,509
Deferred revenue 480 (42,688)
----------------------
Net Cash Flows Used by Operations (596,310) (694,644)
Cash Flows from Investing Activities
Equipment acquisitions (2,988) (9,507)
----------------------
Net Cash Used by Investing Activities (2,988) (9,507)
Cash Flows from Financing Activities
Sale of common stock 227,500 --
Common stock subscribed -- 155,000
Proceeds from bank line 250,000 --
Sale of long-term debt 250,000 --
Stockholder advances 90,000 125,000
Repayment of stockholder advances (90,000) --
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Net Cash Provided by Financing Activities 727,500 280,000
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Increase (Decrease) in Cash and Cash Equivalents 128,202 (424,151)
Cash at Beginning of Period 44,225 454,809
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Cash at End of Period+A26 $ 172,427 $ 30,658
======================
Supplemental Cash Flow Information:
Cash paid for interest $ 15,197 $ 2,000
Non-cash investing and financing activities:
Notes converted to stock $ 30,000 --
Warrants issued for bank guarantee 20,000 --
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
VALUESTAR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1997
1. OPERATIONS
The Company, a Colorado corporation, conducts its operations through ValueStar,
Inc., a wholly-owned subsidiary. ValueStar, Inc. was incorporated in California
in 1991, and is a provider of service and professional business rating
information to consumers. A certification trademark, ValueStar(R) Certified is
issued to businesses that have successfully passed an independent rating of
their customer's satisfaction. The Company's activities are currently
concentrated in Northern California. The Company communicates information about
highly rated service and professional firms that have earned "ValueStar
Certified" through various media including its Internet site
(www.valuestar.com), a periodic publication (Consumer ValueStar Reports) and a
voice-text service (808-STAR).
The Company's revenues are primarily from research and rating fees paid by new
and renewal customers, annual certification fees from qualified applicants and
renewal customers, and sales of information service products. The Company, from
time to time, provides discounts, incentives and satisfaction guarantees to
first time applicants, and may extend payment terms on the annual certification
fee. Certification fees and related cost of sales consisting of research and
rating fees are recognized when all related services are provided to the
customer. The Company provides a reserve for customer satisfaction guarantees.
Sales of information services are recognized as materials are delivered or
shipped or services are rendered.
Costs incurred in printing and distributing the Company's consumer publication,
Consumer ValueStar Report, published in January and July, and any related
revenues are recognized upon publication.
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles. The interim financial statements and
notes thereto should be read in conjunction with the Company's audited financial
statements and notes thereto for the year ended June 30, 1997.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. Operating results for the three and six month
periods are not necessarily indicative of the results that may be expected for
the year.
Certain reclassifications have been made in the prior year to conform to the
current period presentation.
3. INVENTORY
Inventory is recorded at the lower of cost (using the first-in first-out method
of accounting) or market. Inventory consists of brochures and related materials
for resale.
4. DEFERRED COSTS
All direct costs related to marketing and advertising the ValueStar
certification to business and consumers are expensed in the period incurred,
except for direct-response advertising costs, which are capitalized and
amortized over a twelve month period. Deferred costs consist of direct-response
advertising programs consisting of telemarketing, printing, and mailing costs.
Deferred costs are periodically evaluated to determine if adjustments for
impairment are necessary.
5. LINE OF CREDIT
The Company has a $250,000 revolving bank line of credit, with interest at prime
plus 2%. The bank's commitment under this agreement matures in August 1998. The
line of credit is guaranteed by certain officers, directors and shareholders of
the Company.
6
<PAGE>
VALUESTAR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1997
6. LONG-TERM DEBT
The Company is obligated on two 12% notes in the amount of $50,000 each for an
aggregate of $100,000 one of which is payable to the spouse of a director. These
notes are due on September 30, 1998 and included in current liabilities.
In December 1997 the Company obtained $250,000 from the sale of long-term
unsecured 12% subordinated notes due June 30, 2000 ("12% Notes). Interest on the
12% Notes is payable monthly. In connection with the sale of the 12% Notes, the
Company issued warrants exercisable into 125,000 common shares at $1.25 per
share until December 31, 2000.
Subsequent to December 31, 1997 the Company sold an additional $457,500 of 12%
Notes and issued warrants for 228,750 shares on the same terms as above.
7. STOCKHOLDERS' DEFICIT
<TABLE>
The following table summarizes equity transactions during the six months ended
December 31, 1997:
<CAPTION>
Shares Par Value Paid in Capital Total $
---------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Balance June 30, 1997 8,326,246 $ 2,082 $3,759,351 $3,761,433
Private placement at $1.00 per unit, consisting of
one share and one warrant 250,000 62 249,938 250,000
Value assigned to 250,000 warrants granted for
bank guarantee -- -- 20,000 20,000
Exercise of stock options 15,000 4 7,496 7,500
---------- ---------- ---------- ----------
Balance December 31, 1997 8,591,246 $ 2,148 $4,036,785 $4,038,933
========== ========== ========== ==========
</TABLE>
The Company has reserved 250,000 shares of common stock for each of its 1992 ISO
Plan and 1992 NSO Plan, 300,000 shares of common stock for the 1996 Stock Option
Plan and 200,000 shares of common stock for the 1997 Stock Option Plan. The
following table summarizes option activity for the period ended December 31,
1997:
Weighted Average Weighted
Shares Exercise Price Average Life
------ -------------- ------------
Outstanding July 1, 1997 704,000 $ 0.47 3.28
Granted -- -- --
Canceled -- -- --
Exercised 15,000 $ 0.50 --
Expired -- -- --
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Outstanding December 31, 1997 689,000 $ 0.47 2.79
======= ====== ====
Exercisable at December 31, 1997 588,667 $ 0.44 2.61
======= ====== ====
On March 14, 1997 the Company adopted the 1997 Employee Stock Compensation Plan
providing for the issuance of up to 4,000 common shares to non-executive
employees. At December 31, 1997 an aggregate of 2,900 common shares had been
granted pursuant to this plan.
At December 31, 1997 the Company had the following stock purchase warrants
outstanding each exercisable into one common share:
Number Exercise Price Expiration Date
------ -------------- ---------------
150,000 $0.75 April, 2002
10,000 $0.75 September, 1998
200,000 $1.25 June, 2002
300,000 $1.25 September, 2002
200,000 $1.25 December, 2002
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860,000
=======
7
<PAGE>
VALUESTAR CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1997
Subsequent to December 31, 1997, in connection with 12% Notes (see Note 6), the
Company issued warrants on 353,750 common shares exercisable at $1.25 per share
until December 31, 2000.
The Company has authorized 5 million shares of capital stock as preferred stock,
with a par value of $0.00025 per share. No preferred stock is issued or
outstanding.
8. INCOME TAXES
At December 31, 1997 a valuation allowance has been provided to offset the net
deferred tax assets as management has determined that it is more likely than not
that the deferred tax asset will not be realized. The Company has for federal
income tax purposes net operating loss carryforwards of approximately $3,300,000
which expire through 2012 of which certain amounts are subject to limitations
under the Internal Revenue Code, as amended.
9. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
accounting Standards ("SFAS") No. 128, "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129 "Disclosures of Information About an
Entity's Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than is currently used in accordance with
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS 128
provides for the calculation of "Basic" and "Dilutive" earnings per share. Basic
earnings per share includes no dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure. SFAS No. 128 and
SFAS No. 129 are effective for financial statements issued for periods ending
after December 15, 1997. Their implementation is not expected to have a material
effect on the consolidated financial statements.
The Financial Accounting Standards Board has also issued SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 130 establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that displays with the
same prominence as other financial statements. SFAS No. 131 supersedes SFAS No.
14 "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosure
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
SFAS No. 130 and No. 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, the standards
may have on the future consolidated financial statement disclosures. Results of
operations and financial position, however, will be unaffected by implementation
of these standards.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING,
"BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB PURSUANT
TO RULE 15d-2 FOR THE YEAR ENDED JUNE 30, 1997 AND THE COMPANY'S REGISTRATION
STATEMENT ON FORM 10-SB DATED MAY 29, 1997, AS AMENDED.
Overview
The Company's revenues are generated primarily from research and rating fees
paid by new and renewal businesses, annual certification fees from qualified
applicants and renewals and from the sale of information products and services.
The Company from time to time provides discounts, incentives from basic pricing
and may provide satisfaction guarantees to first time applicants and also from
time to time extends payment terms on the annual certification fee.
Certification fees are recognized when material services or conditions relating
to the certification have been performed. The material services are the delivery
of certification materials and manuals along with an orientation and the
material condition is the execution of the license agreement specifying the
conditions and limitation on using the certification.
Research and rating fee revenue is deferred until the research report is
delivered. Approximately 70% of applicants successfully pass the Company's
research and rating requirements and are eligible for certification and
approximately 90% of eligible applicants license the certification. More than
90% of renewal applicants pass subsequent ratings. The Company provides reserves
for any satisfaction guarantees. Sales of information materials and other
services are recognized as materials are delivered or shipped or services
rendered.
The Company expenses research and rating costs as incurred. Costs incurred in
printing and distributing the Company's Consumer ValueStar Report publication
published in January and July and any related revenues are recognized upon
publication.
Effective July 1, 1994, with the adoption by the Company of Statement of
Position No. 93-7 (SOP 93-7), Reporting on Advertising Costs, certain
advertising costs are deferred and amortized over a twelve month period on a
straight-line method. These costs, which relate directly to targeted new
licensee solicitations, primarily include targeted direct-response advertising
programs consisting of telephone sales, printing and mailing costs. No indirect
costs are included in deferred advertising costs. Costs incurred for other than
specific targeted customers, including general marketing and promotion expenses,
are expensed as incurred.
The net effect of capitalizing and amortizing deferred costs was a reduction in
costs and expenses of $19,689 and $98,482 for the six months ended December 31,
1997 and 1996, respectively.
The Company estimates new licensees have an average life exceeding four years.
Since the Company's annual licensee renewal rate has averaged more than 75%
during the last three fiscal years and renewals provide margin in excess of
renewal costs, the Company believes deferred costs will be realized from future
operations. Deferred costs are periodically evaluated to determine if
adjustments for impairment are necessary.
Since inception the Company has been growing and developing its business and has
incurred losses in each year since inception and at December 31, 1997 had an
accumulated deficit of $4,303,653. There can be no assurance of future
profitability.
Effect of Growth in New Licensees and License Renewals
The Company's business model, similar to other membership based organizations,
is predicated on growing new members (business licensees) and maintaining high
renewal rates and expanding the recurring revenues from each member. The
Company's renewal licensees contribute higher gross margins than new applicants
due to reduced sales costs. Also a growing and larger base of licensees reduces
the costs (relative to revenues) associated with printing and distributing the
Company's Consumer ValueStar Report, maintaining the ValueStar.com Internet site
and providing voice-text services. The marginal costs of more licensees is
minimal compared to these base printing, distribution and maintenance costs.
9
<PAGE>
Since a considerable portion of the Company's operations are engaged towards the
solicitation of new service and professional business applicants in order to
expand the base of licensees, the Company incurs substantial costs towards this
activity. Currently the Company is only deferring direct telephone sales costs
and amortizing them over twelve months. Other costs are expensed as occurred.
At December 31, 1997 the Company had 1,013 licensees compared to 576 licensees
on December 31,1996.
The Company believes as a market territory matures, and the Company has a larger
base of licensees, fixed and indirect costs will decline as a percentage of
revenues. The Company's operations require that it achieve a critical mass of
licensees sufficient to cover general management, overhead and indirect costs of
operations. Management estimates based on the current cost structure and level
of advertising and promotion expenditures that this critical mass is
approximately 1,200 licensees. There can be no assurance the Company can achieve
this level of licensees and thereafter, if achieved, operations can be impacted
by changes in the cost structure and elections regarding advertising, promotions
and growth rates (due to the lower margins associated with first year
licensees).
Effective January 1, 1997 the Company changed its new business marketing focus
to telephone sales from a field sales force. This has resulted in a significant
increase in applicants for ratings and reduced unit sales costs. In December
1997 the Company made a change from using an outside vendor to perform customer
satisfaction research on applicants to in-house employees. This change is
expected to reduce unit rating costs and provide improved quality control over
the research and rating process. However the change resulted in a delay in
completing pending ratings during the second fiscal quarter thereby reducing
second quarter revenues. Management expects to complete delayed ratings in the
third fiscal quarter.
Because of the change, at December 31, 1997 the Company had 421 (397 new and 24
renewal) prospective licensees in the application and rating phase. At current
new sales rates the normal number of pending prospective licensees would
generally be 200-250. Generally there is a 60 day period between the initial
sign-up of an applicant and the execution of a license agreement for successful
applicants. Based on management's experience, these 421 prospective licensees
are expected to represent over $300,000 of revenues that should be recognized in
the third fiscal quarter (generally analogous to backlog).
Results of Operations
Revenues. Revenues consist of certification fees from new and renewal business
licensees, rating fees from new and renewal business applicants, sale proceeds
from information materials and premium listings, and other ancillary revenues.
The Company reported total revenues of $791,693 for the six months ended
December 31, 1997, a 55% increase over revenues of $509,456 for the first six
months of the prior fiscal year. During the first six months license fees
accounted for 75% of revenue (74% for the prior year's first six months). The
growth in revenues is the result of improved new sales velocity and the impact
of a larger base of business member renewals. Revenues for the second fiscal
quarter ended December 31, 1997 were $267,477 compared to $240,201 for the prior
year comparable quarter. This small increase is the direct effect of the
increase in pending prospective licensees during the second quarter (as
described above) which increased from 210 at September 30, 1997 to 421 at
December 31, 1997. The increase in pending prospective licensees represents an
estimated $100,000 of revenue pending expected to be realized in the third
fiscal quarter rather than the second quarter of fiscal 1998.
During fiscal 1996 and the first half of fiscal 1997 the Company experimented
with various direct mail and direct sales methods. Effective January 1, 1997 the
Company changed from a field sales force to telephone sales to obtain new rating
applicants. The Company believes, based on its over 75% historical renewal rate,
that investments in new licensees will contribute to greater recurring revenues
in future periods. At December 31, 1997 the Company had 421 applicants in
various stages of rating, effectively a (anticipated revenue) backlog estimated
at $300,000 to be recognized in the third fiscal quarter ending March 31, 1998
from license fees. As a result of this backlog, management expects, but there
can be no assurance, that third quarter fiscal 1998 (year ending June 30, 1998)
revenues will exceed both the second quarter of the current year and the third
quarter of the prior year.
Revenues can vary from quarter to quarter due to seasonality, effectiveness of
sales methods and promotions, levels of expenditures targeted at prospective
licensees, the numbers of licensees up for renewal, renewal rates, pricing
policies, timing of completion of research and ratings and other factors, some
beyond the control of management.
Cost of Revenues. Cost of revenues consist primarily of rating costs paid to
third parties for performing customer satisfaction research on business
applicants, in-house staffing and costs related to auditing and rating of
applicants and
10
<PAGE>
costs of information products and licensing materials. Cost of revenues
represented 32% of sales in the first six months of fiscal 1998 (38% in the
second quarter), a reduction from 49% in the first six months of the prior year
(57% for the second quarter of the prior year). The increase in the second
quarter percentage resulted from the decreased revenue caused by the increase in
pending licensees. During the current year, the Company made changes to make
ratings more efficient and arranged for improved third party pricing to reduce
rating costs. And in December 1997 the Company changed from third party contract
ratings to in-house employees as discussed above. This change is expected to
reduce rating costs on a per unit basis and as a percentage of revenues. The
increased volume of revenues in the current year also reduces the percentage of
revenues associated with fixed rating costs. Cost of revenues may vary
significantly from quarter to quarter both in amount and as a percentage of
sales.
Sales Costs. Sales costs for the six months ended December 31, 1997 were
$370,521 or 47% of revenues compared to $374,312 or 73% of revenues for the
comparable prior period. In the first six months of the prior year, the Company
relied on a direct sales force supported by direct mail to generate sales. In
the current six months, the Company had implemented the telephone sales
approach, also supported by direct mail. This has resulted in reduced unit
selling costs. Also in the first six months of the current year approximately
37% of license fees came from renewals with limited sales costs, compared to
approximately 22% of license fees coming from renewals in the prior periods
first six months. Sales costs for the second quarter were $193,949 or 72% of
revenues. The increase in the second quarter over the average for the six months
is the result of the increase in pending licensees which reduced revenues in the
second quarter. The Company expects sales costs as a percentage of revenues will
vary in future periods resulting from variances in renewal rates, the effect of
new sales promotions and costs thereof, timing of research and rating
completions, level and percentage of fixed selling costs and other factors, some
beyond the control of management.
Marketing and Promotion Expenses. Marketing and promotion expenses aggregated
$295,116 in the first six months of fiscal 1998 compared to $218,108 in the
first six months of fiscal 1997. Included in marketing and selling expenses in
each six months were printing and distribution costs of the Company's Consumer
ValueStar Report (CVR) publication targeted at consumers. Printing and
distribution costs of $102,000 in the first fiscal 1998 quarter were comparable
to the fiscal 1997 first quarter, however the company was able to print and
distribute more copies due to better prices. During the six months ended
December 31, 1997 the Company expended $65,000 on paid advertising targeted at
expanding consumer awareness of ValueStar Certified. No paid advertising was
employed in the prior year's first six months. Marketing and promotion expenses
were $33,438 for the three months ended December 31, 1997 compared to $37,726
for the prior comparable period. Generally the second and fourth fiscal quarters
have reduced costs because the CVR publication is not printed and distributed
during these quarters. Also generally the Company does not expend significant
advertising in the second fiscal quarter due to high calendar year end media
costs. The Company anticipates increased marketing and promotion costs in the
upcoming third fiscal quarter of 1998 due to the printing and distribution of a
new CVR and a planned advertising program.
Marketing and promotion expenses are subject to significant variability based on
decisions regarding the timing and size of distribution of CVR and decisions
regarding paid advertising, public relations and market and brand awareness
efforts. The Company anticipates continuing to make significant expenditures in
marketing and promotion efforts as the Company supports a growing licensee base
but anticipates a decreasing annual percentage of revenues as revenues grow.
However amounts and percentages on a quarterly basis may vary significantly.
General and Administrative Expenses. General and administrative expenses consist
primarily of expenses for finance, office operations, administration and general
management activities, including legal, accounting and other professional fees.
They totaled $318,770 for the six months ended December 31, 1997 compared to
$246,585 for the comparable prior period. The major increases include a $10,000
increase in occupancy costs due to additional personnel, an $11,000 increase in
corporate costs due to the public trading of common shares of the Company in the
current year, a $15,000 increase in guarantees and bad debts due to increased
volumes, a $5,000 increase in postage due to increased activities and a $20,000
non-cash bank guarantee fee paid in warrants.
General and administrative expenses were $163,116 for the second quarter
compared to $115,489 for the prior year's second quarter. Management anticipates
that current year general and administrative costs will continue to exceed the
prior year due to increased personnel and corporate costs as a publicly traded
company.
To date development expenses associated with the design, development and testing
of the Company's programs and services have not been material and are included
in sales and marketing or general and administrative expenses (if performed by
executive management). In the future, as the Company develops new programs or
services, it anticipates that it may segregate development expenses as an
expense category.
11
<PAGE>
Net Loss. The Company had a net loss of $462,169 for the six months ended
December 31, 1997 compared to a net loss of $582,895 in fiscal 1997is first six
months. The decreased loss resulted primarily from improved selling efficiency
and the increase in total revenues which reduced the effect of fixed operating
costs. The Company anticipates it will continue to experience operating losses
until it achieves a critical mass base of renewing licensees as it pursues
aggressive growth in new licensees. Achievement of positive operating results
will require obtaining a sufficient base of new licensees and renewal licensees
to support operating and corporate costs. There can be no assurance the Company
can sustain renewal rates or achieve a profitable base of operations.
Liquidity and Capital Resources
Since the Company commenced operations it has had significant negative cash flow
from operating activities. The negative cash flow from operating activities was
$1,519,799 for the fiscal year ended June 30, 1997, and $722,518 for the fiscal
year ended June 30, 1996. At June 30, 1997 the Company had a working capital
deficit of $163,558 and at December 31, 1997 a working capital deficit of
$215,706 resulting from a portion of operations being financed by debt. For the
six months ended December 31, 1997 negative cash flow from operating activities
was $596,310 due to the continued operating losses and heavy investment in new
licensee growth. Included in working capital at December 31, 1997 is net
accounts receivable of $290,811 representing approximately 67 days of revenues
and an annualized turnover ratio of approximately 5.4. This compares to
approximately 102 days of revenues and turnover of approximately 3.6 at June 30,
1997. The improved turnover and reduced receivable level results from increased
revenues and concentrated collection efforts. Management believes that 60 to 90
days sales in receivables is reasonable based on the nature of the Company's
business. At December 31, 1997 the Company has not experienced and does not
anticipate any significant accounts receivable recoverability problems.
The Company has financed its operations primarily through the sale of common
equity, shareholder loans subsequently converted to common stock and debt
financing. Other than the $457,500 of additional 12% Notes sold in January 1998,
there are no commitments for future investments and there can be no assurance
that the Company can continue to finance its operations through these or other
sources. During fiscal 1997 the Company obtained $1,122,175 from equity and debt
sources. For the six months ended December 31, 1997 the Company obtained
$250,000 from a bank line of credit, $250,000 in 12% Note financing and $257,500
from common stock sales and received and repaid $90,000 of shareholder advances
during the period. The bank line of credit is guaranteed by certain officers,
directors and a shareholder.
Other than cash on hand of $172,427 at December 31, 1997, accounts receivable of
$290,811, and the $407,500 of proceeds obtained from 12% Notes sold in January
1998, the Company has no material unused sources of liquidity at this time and
the Company expects to incur additional operating losses in future fiscal
quarters as a result of continued operations and investments in licensee growth.
The timing and amounts of these expenditures and the extent of operating losses
will depend on many factors, some of which are beyond the Company's control.
The Company believes, but there can be no assurance, given the above sources of
liquidity and the combination of anticipated renewal revenues, current levels of
new sales and licensee growth, that it will require approximately $200,000 of
additional funding for the next twelve months. However should actual results
differ significantly from managementis plans, then the Company may require
substantially greater additional operating funds. There can be no assurance that
additional funding will be available or on what terms. Potential sources of such
funds include shareholder and other debt financing or additional equity
offerings. In such an event without additional funding the Company will be
required to curtail or scale back staffing and operations in more reliance on
higher profitable renewals and limit new licensee growth.
The Company intends to expand operations beyond the greater San Francisco Bay
and Sacramento areas in the future, however any significant expansion will
require additional funds. Potential sources of any such funds may include
shareholder and other debt financing or additional offerings of the Company's
equity securities. There can be no assurance that any funds will be available
from these or other potential sources.
Tax Loss Carryforwards
As of June 30, 1997, the Company had approximately $3.3 million of tax loss
carryforwards. A valuation allowance has been recorded for the net deferred tax
asset arising primarily from such tax loss carryforwards because, in the
Company's assessment, it is more likely than not that the deferred tax asset
will not be realized.
Business Risks
This quarterly report contains a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
12
<PAGE>
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "intends," "future" and
similar expressions identify forward-looking statements. Readers are cautioned
to consider the specific risk factors described below and not to place undue
reliance on the forward-looking statements contained herein, which speak only as
of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements, to reflect events or circumstances that may
arise after the date hereof.
Absence of Profitable Operations and Possible Insufficiency of Capital-
The Company has incurred significant operating losses since inception.
The Company incurred an operating loss of $1.4 million for the fiscal
year ended June 30, 1997 and $447,000 for the six months ended December
31, 1997. The Company has had limited financial results upon which
investors may base an assessment of its potential. There can be no
assurance profitable operations can be achieved and management believes
that additional capital will be required.
Possible Inability to Continue as a Going Concern - The Company has
suffered recurring losses from operations. This factor, in combination
with (i) reliance upon debt and equity financing to fund losses from
operations and cash flow deficits, (ii) material net losses and cash
flow deficits from operations and (iv) the possibility that the Company
may be unable to meet its debts as they come due, raise doubt about the
Company's ability to continue as a going concern. The Company's ability
to continue as a going concern is dependent upon obtaining additional
capital and ultimately achieving and maintaining profitable operations,
as to which no assurance can be given.
Competition and Technological Change - The possibility exists that a
business rating service and certification mark similar to or
competitive with that of the Company will be developed. It is also
possible that future competition will try to duplicate the Company's
concept. The Company could face head-on competition from vastly larger
and better financed companies with the means to launch a high-impact
campaign locally or nationally. Technological changes in the manner of
selecting service businesses and communicating information to consumers
could also have a negative impact on the Company's business. As a
provider of consumer information through the Internet and various media
the Company will be required to adapt to new and changing technologies.
There can be no assurance that the Company's services will remain
viable or competitive in face of technological change.
Dependence on Officers and Directors - The Company is substantially
dependent upon the experience and knowledge of its officers and
directors. The loss to the Company of such persons, particularly Mr.
James Stein, could be detrimental to the Company's development,
especially since it may not have the funds to hire management personnel
with the requisite expertise. The Company has a $0.5 million key-man
life insurance policy on Mr. Stein and has applied for increased
insurance to $2.0 million.
Managing a Growing and Changing Business - The Company continues to
experience changes in its operations resulting from expansion of its
business and other factors which has and may place demands on its
administrative, operational and financial resources. The Company's
future performance will depend in part on its ability to manage growth
and to adapt its administrative, operational and financial control
systems to the needs of an expanding entity. The failure of management
to anticipate, respond to and manage changing business conditions could
have a material adverse effect on the Company's business and results of
operations.
Government Regulation and Legal Uncertainties - The Company is not
currently subject to direct regulation other than federal and state
regulation applicable to businesses generally. The Company may also be
subject to uninsured claims by consumers for actions of licensees or
other claims incident to its business operations.
Stock Trading Risks and Uncertainties - On May 28, 1997 the Company's
Common Stock commenced trading on the National Association of
Securities Dealers, Inc. ("NASD") OTC Electronic Bulletin Board.
Securities traded on the Bulletin Board are, for the most part thinly
traded and subject to special regulations. The Company's Common Stock
is currently defined as "penny stocks" under the Exchange Act, and
rules of the Securities and Exchange Commission thereunder. The
Exchange Act and such penny stock rules generally impose additional
sales practice and disclosure requirements upon broker-dealers who sell
the Company's securities to persons other than certain "accredited
investors" (generally, institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 jointly with spouse) or in transactions
not recommended by the broker-dealer. For transactions covered by the
penny stock rules, the broker-dealer must make a suitability
determination for each purchaser and receive the purchaser's written
agreement prior to the sale. In addition, the broker-dealer must make
certain mandated disclosures in penny stock
13
<PAGE>
transactions, including the actual sale or purchase price and actual
bid and offer quotations, the compensation to be received by the
broker-dealer and certain associated persons, and deliver certain
disclosures required by the Securities and Exchange Commission.
Consequently, the penny stock rules may affect the ability of
broker-dealers to make a market in or trade the Company's shares and
thus may also affect the ability of purchasers of shares to resell
those shares in the public markets.
Like that of securities of other small, growth-oriented companies, the
Company's shares are expected to experience future significant price
and volume volatility, increasing the risk of ownership to investors.
Sales of substantial amounts of Common Stock in the public market could
adversely affect the prevailing market price of the Common Stock.
Future changes in market price and volume cannot be predicted as to
timing or extent. Any historical performance that may develop does not
guarantee or imply future performance. Future announcements concerning
the Company or its competitors, quarterly variations in operating
results, announcements of technological or service innovations, the
introduction of new products or services, changes in pricing policies
by the Company or competitors, litigation relating to services or other
litigation, changes in performance estimates by analysts or others,
issuances of or registration of additional securities, or other factors
could cause the market price of the Common Stock to fluctuate
substantially. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have
particularly affected the market price of small companies and have
often been unrelated to the operating performance of particular
companies.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
(a) None
(b) None
(c) The following is a description of equity securities sold by the Company
during the fiscal quarter ended December 31, 1997 that were not registered under
the Securities Act:
1. The Company issued four stock purchase warrants dated December 9,
1997, each exercisable to purchase 62,500 shares of Common Stock
at $1.25 per share until September 30, 2002. These warrants were
granted to two officer/directors, one director and one shareholder
in connection with the guarantee of the bank line of credit. The
Company expensed $20,000 as the value assigned to the warrants.
The issuance was exempt by reason of Section 4(2) of the
Securities Act of 1933, as amended (the "Act") in reliance on the
private nature of the transaction, restrictions on transfer and
based on representations of the recipients. An appropriate legend
was placed on the warrants.
2. During December 1997 the Company sold $250,000 ($150,000 for cash
and $100,000 on conversion of previous cash advances by
stockholders) of unsecured 12% subordinated promissory notes due
June 30, 2000 (12% Notes) to five persons. The securities were
sold by the Company without an underwriter. The 12% Notes are not
convertible and interest is payable monthly in cash. Each
purchaser was granted a warrant to purchase 500 common shares at
$1.25 per share until December 31, 2000 ("Warrant") for each
$1,000 of 12% Notes purchased. The Warrants in connection with the
12% Notes sold during the quarter are exercisable into 125,000
common shares in the aggregate. These securities were offered and
sold without registration under the Act, in reliance upon the
exemption provided by Regulation D thereunder and an appropriate
legend was placed on the Notes and Warrants.
3. During December 1997 the Company completed the sale of 200,000
shares of its Common Stock at $1.00 per share in cash and warrants
to purchase 200,000 common shares at $1.25 per share until
December 31, 2002. The securities were sold by the Company without
an underwriter to three qualified investors (already shareholders
and including one officer/director). The issuance was exempt by
reason of Section 4(2) of the Act in reliance on the private
nature of the transaction, restrictions on transfer on the shares
and warrants and based on representations of the purchasers. An
appropriate legend was placed on the shares and warrants.
4. During December 1997 the Company issued 15,000 shares upon the
payment of $7,500 cash in connection with the exercise of a
non-qualified stock option by one qualified purchaser. The shares
were issued by the Company without the services of an underwriter.
The issuance was exempt by reason of Section 4(2) of the Act in
reliance on the private nature of the transaction, restrictions on
transfer on the shares and based on representations of the
purchaser. An appropriate legend was placed on the shares.
14
<PAGE>
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.6 Form of Stock Purchase Warrant dated October 27, 1997 granted
to two investors exercisable into an aggregate of 50,000
common shares at $1.25 per share until September 30, 2002
(individual warrants are for 25,000 shares each and differ as
to holder).
4.7 Form of Stock Purchase Warrant dated December 9, 1997 granted
to four persons for bank guarantee exercisable into an
aggregate of 250,000 common shares at $1.25 per share until
September 30, 2002 (individual warrants are for 62,500 shares
each and differ as to holder). Holders include
officers/directors James Stein and James A. Barnes and
director Jerry E. Polis.
4.8 Form of Stock Purchase Warrant dated December 12, 1997 granted
to three investors exercisable into an aggregate of 200,000
common shares at $1.25 per share until December 31, 2002
(individual warrants differ as to number and holder).
Officer/director James A. Barnes is holder of a warrant on
20,000 of these shares.
4.9 Form of unsecured 12% Subordinated Promissory Notes due June
30, 2000 granted to investors (individual notes differ as to
date, principal amount and holder).
4.10 Form of Stock Purchase Warrant granted to 12% Subordinated
Promissory Note holders (at the rate of warrants on 500 common
shares for each $1,000 of notes) exercisable at $1.25 per
common share until December 31, 2000 (each individual warrant
differs as to number of shares, date and holder).
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
VALUESTAR CORPORATION
Date: February 12, 1998 By: /s/ BENJAMIN A. PITTMAN
-----------------------------
Benjamin A. Pittman
Secretary and Controller
(Principal Financial and
Accounting Officer and duly
authorized to sign on
behalf of the Registrant)
15
EXHIBIT 4.6
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OR REGULATION S OF SUCH ACT.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE 25,000 SHARES OF COMMON STOCK
THIS CERTIFIES THAT ____________ ("Holder") is entitled to purchase, on or
before September 30, 2002, TWENTY FIVE THOUSAND (25,000) shares of the common
stock ("Common Stock") of VALUESTAR CORPORATION (the "Corporation") upon
exercise of this Warrant along with presentation of the full purchase price. The
purchase price of the common stock is equal to One Dollar and Twenty Five Cents
($1.25) per share (the "Exercise Price"). This Warrant is granted for valuable
consideration received.
1. Exercise.
This Warrant may be exercised one time, in whole only, on any business day on or
before the expiration date listed above by presentation and surrender hereof to
the Corporation at its principal office of a written exercise request and the
Exercise Price in lawful money of the United States of America in the form of a
wire transfer or check, subject to collection, for the Warrant Shares specified
in the exercise request. Upon receipt by the Corporation of an exercise request
and representations, together with proper payment of the Exercise Price, at such
office, the Holder shall be deemed to be the holder of record of the Warrant
Shares, notwithstanding that the stock transfer books of the Corporation shall
then be closed or that certificates representing such Warrant Shares shall not
then be actually delivered to the Holder. The Corporation shall pay any and all
transfer agent fees, documentary stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Warrant Shares. The
Corporation may at its discretion allow the Holder to exercise this Warrant on
net issuance terms.
This Warrant is redeemable and callable upon 20 days written notice by the
Corporation to the Holder at the price of $0.01 per exercisable share provided
that the closing bid price of the Company's common stock is $5.00 or more for
ten consecutive trading days. The redemption shall be made by the Corporation in
writing (with proof of receipt) specifying the terms of redemption and advising
the Holder the final date to exercise this Warrant to prevent such redemption
and whether any net issuance terms are being offered by the Corporation.
2. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant.
The Exercise Price and the number of Shares purchasable upon the exercise of
this Warrant ("Warrant Shares") are subject to adjustment from time to time upon
the occurrence of the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a
distribution in shares of its Common Stock with respect to its
outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of
its shares of Common Stock;
the Exercise Price in effect at the time of the record date of such dividend,
subdivision, combination, or reclassification shall be proportionately adjusted
so that Holder shall be entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised prior to such event, Holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
<PAGE>
(b) In case the Corporation shall fix a record date for the issuance of rights,
options, or warrants or make a distribution of shares of Common Stock to all
(but not less than all) holders of its outstanding Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share (or having a conversion price
per share, if a security convertible into Common Stock) less than the market
price of the shares (based on the closing price on the record date on NASDAQ or
a listed securities exchange of the Corporation's Common Stock, or if no such
quote is available, the shareholders equity on the date of the last financial
statement divided by the total number of shares outstanding) (the "Market
Price"), the Exercise Price to be in effect after such record date shall be
determined by multiplying the then current Exercise Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
Market Price and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible). Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in effect
if such record date had not been fixed.
(c) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger with a subsidiary or a continuing corporation), or in case of any sale or
conveyance to another entity of all or substantially all of the property of the
Corporation, then, as a condition of such reorganization, reclassification,
change, consolidation, merger, sale, or conveyance, the Corporation or such
successor or purchasing entity, as the case may be, shall forthwith provide to
Holder a supplemental warrant (the "Supplemental Warrant") which will make
lawful and adequate provision whereby Holder shall have the right thereafter to
receive, upon exercise of such Supplemental Warrant, the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock equal to the number
of Shares issuable upon exercise of this Warrant immediately prior to such
reorganization, reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph. The above provisions of this paragraph shall
similarly apply to successive reorganizations, reclassifications, and changes of
Common Stock and to successive consolidations, mergers, sales, or conveyances.
3. Restrictions on Transfer.
Holder has been advised and understands that the Warrants and the Shares
purchasable thereby are characterized as "restricted securities" under the
federal securities laws because they are being acquired from Corporation in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. Holder further understands that
the certificates evidencing the Shares will bear the following or comparable
legend: "These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 or Regulation S
under such Act."
The Holder understands that the Company may place, and may instruct any transfer
agent or depository for the Shares to place, a stop transfer notation in the
securities records in respect of the Shares.
4. Registration Rights.
Holder shall have the right, at any time and from time to time until September
30, 2002, to include all of the shares purchased or purchasable upon the
exercise of this Warrant ( the "Registrable Shares") within any Registration
Statement of the Corporation filed by the Corporation covering shares of its
Common Stock other than a Registration Statement filed solely with respect to
any employee benefit plan of the Corporation or an offering solely related to an
acquisition or for which such Registrable Shares cannot be appropriately
registered. The Corporation shall promptly give written notice to Holder of any
intended registration of its Common Stock not less than forty-five (45) days
prior to the anticipated effective date of the Registration Statement, and
Holder shall, within fifteen (15) days of receipt thereof, notify the
Corporation of the number of Registrable Shares it desires to include in the
Registration Statement. The number of Registrable Shares
<PAGE>
which may be included by the Holder in any such Registration Statement may be
restricted by the Corporation if, in the opinion of the Corporation's managing
underwriter, the number of shares proposed to be sold by the Holder and by the
Corporation in such offering exceeds the number of securities which can be sold
in such offering. In such event, the Registrable Shares of Holder to be included
within such Registration Statement shall not exceed the number approved for
inclusion therein by the Corporation and its managing underwriter. All costs or
expenses, incident to the registration, qualification or listing of such
securities shall be paid by the Corporation, and the Corporation shall comply
with all reasonable requests of Holder made in connection with the registration,
qualification, listing or sale of Registrable Shares.
5. Assignment or Loss of Warrant.
(a) The Holder of this Warrant shall be entitled, without obtaining the consent
of the Corporation, to assign its interest in this Warrant, or any of the
Warrant Shares, in whole or in part to any person, provided, however, that the
transferee, prior to any such transfer, provides the Corporation with a legal
opinion, in form and substance satisfactory to the Company, that such transfer
will not violate the Act or any applicable state securities or blue sky laws.
Otherwise without obtaining the prior written consent of the Company, Holder
shall not transfer or assign its interest in this Warrant, or any of the Warrant
Shares prior to exercise, in whole or in part to any transferee.
(b) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6. Reservation of Shares. The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise or exchange of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise or exchange of this Warrant.
All such shares shall be duly authorized and, when issued upon the exercise or
exchange of the Warrant in accordance with the terms hereof, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale (other than as
provided in the Company's articles of incorporation and any restrictions on sale
set forth herein or pursuant to applicable federal and state securities laws)
and free and clear of all preemptive rights.
7. Arbitration. In the event that a dispute arises between the Corporation and
the holder of this Warrant as to any matter relating to this Warrant, the matter
shall be settled by arbitration in Alameda County, California in accordance with
the Rules of the American Arbitration Association and the award rendered by such
arbitrator(s) shall not be subject to appeal and may be entered in any federal
or state court located in Alameda County having jurisdiction thereof, and
actions or proceedings shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers and the corporate seal hereunto affixed on this
27th day of October, 1997.
VALUESTAR CORPORATION
/s/JAMES STEIN
James Stein, President and CEO
/s/BENJAMIN A. PITTMAN
Benjamin A. Pittman, Secretary
EXHIBIT 4.7
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OR REGULATION S OF SUCH ACT.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE 62,500 SHARES OF COMMON STOCK
THIS CERTIFIES THAT ____________ ("Holder") is entitled to purchase, on or
before September 30, 2002, SIXTY TWO THOUSAND FIVE HUNDRED (62,500) shares of
the common stock ("Common Stock") of VALUESTAR CORPORATION (the "Corporation")
upon exercise of this Warrant along with presentation of the full purchase
price. The purchase price of the common stock is equal to One Dollar and Twenty
Five Cents ($1.25) per share (the "Exercise Price"). This Warrant is granted for
valuable consideration received.
1. Exercise.
This Warrant may be exercised one time, in whole only, on any business day on or
before the expiration date listed above by presentation and surrender hereof to
the Corporation at its principal office of a written exercise request and the
Exercise Price in lawful money of the United States of America in the form of a
wire transfer or check, subject to collection, for the Warrant Shares specified
in the exercise request. Upon receipt by the Corporation of an exercise request
and representations, together with proper payment of the Exercise Price, at such
office, the Holder shall be deemed to be the holder of record of the Warrant
Shares, notwithstanding that the stock transfer books of the Corporation shall
then be closed or that certificates representing such Warrant Shares shall not
then be actually delivered to the Holder. The Corporation shall pay any and all
transfer agent fees, documentary stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Warrant Shares. The
Corporation may at its discretion allow the Holder to exercise this Warrant on
net issuance terms.
This Warrant is redeemable and callable upon 20 days written notice by the
Corporation to the Holder at the price of $0.01 per exercisable share provided
that the closing bid price of the Company's common stock is $5.00 or more for
ten consecutive trading days. The redemption shall be made by the Corporation in
writing (with proof of receipt) specifying the terms of redemption and advising
the Holder the final date to exercise this Warrant to prevent such redemption
and whether any net issuance terms are being offered by the Corporation.
2. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant.
The Exercise Price and the number of Shares purchasable upon the exercise of
this Warrant ("Warrant Shares") are subject to adjustment from time to time upon
the occurrence of the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a
distribution in shares of its Common Stock with respect to its
outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of
its shares of Common Stock;
the Exercise Price in effect at the time of the record date of such dividend,
subdivision, combination, or reclassification shall be proportionately adjusted
so that Holder shall be entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised prior to such event, Holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
<PAGE>
(b) In case the Corporation shall fix a record date for the issuance of rights,
options, or warrants or make a distribution of shares of Common Stock to all
(but not less than all) holders of its outstanding Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share (or having a conversion price
per share, if a security convertible into Common Stock) less than the market
price of the shares (based on the closing price on the record date on NASDAQ or
a listed securities exchange of the Corporation's Common Stock, or if no such
quote is available, the shareholders equity on the date of the last financial
statement divided by the total number of shares outstanding) (the "Market
Price"), the Exercise Price to be in effect after such record date shall be
determined by multiplying the then current Exercise Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
Market Price and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible). Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in effect
if such record date had not been fixed.
(c) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger with a subsidiary or a continuing corporation), or in case of any sale or
conveyance to another entity of all or substantially all of the property of the
Corporation, then, as a condition of such reorganization, reclassification,
change, consolidation, merger, sale, or conveyance, the Corporation or such
successor or purchasing entity, as the case may be, shall forthwith provide to
Holder a supplemental warrant (the "Supplemental Warrant") which will make
lawful and adequate provision whereby Holder shall have the right thereafter to
receive, upon exercise of such Supplemental Warrant, the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock equal to the number
of Shares issuable upon exercise of this Warrant immediately prior to such
reorganization, reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph. The above provisions of this paragraph shall
similarly apply to successive reorganizations, reclassifications, and changes of
Common Stock and to successive consolidations, mergers, sales, or conveyances.
3. Restrictions on Transfer.
Holder has been advised and understands that the Warrants and the Shares
purchasable thereby are characterized as "restricted securities" under the
federal securities laws because they are being acquired from Corporation in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. Holder further understands that
the certificates evidencing the Shares will bear the following or comparable
legend: "These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 or Regulation S
under such Act."
The Holder understands that the Company may place, and may instruct any transfer
agent or depository for the Shares to place, a stop transfer notation in the
securities records in respect of the Shares.
4. Registration Rights.
Holder shall have the right, at any time and from time to time until September
30, 2002, to include all of the shares purchased or purchasable upon the
exercise of this Warrant ( the "Registrable Shares") within any Registration
Statement of the Corporation filed by the Corporation covering shares of its
Common Stock other than a Registration Statement filed solely with respect to
any employee benefit plan of the Corporation or an offering solely related to an
acquisition or for which such Registrable Shares cannot be appropriately
registered. The Corporation shall promptly give written notice to Holder of any
intended registration of its Common Stock not less than forty-five (45) days
prior to the anticipated effective date of the Registration Statement, and
Holder shall, within fifteen (15) days of receipt thereof, notify the
Corporation of the number of Registrable Shares it desires to include in the
Registration Statement. The number of Registrable Shares
<PAGE>
which may be included by the Holder in any such Registration Statement may be
restricted by the Corporation if, in the opinion of the Corporation's managing
underwriter, the number of shares proposed to be sold by the Holder and by the
Corporation in such offering exceeds the number of securities which can be sold
in such offering. In such event, the Registrable Shares of Holder to be included
within such Registration Statement shall not exceed the number approved for
inclusion therein by the Corporation and its managing underwriter. All costs or
expenses, incident to the registration, qualification or listing of such
securities shall be paid by the Corporation, and the Corporation shall comply
with all reasonable requests of Holder made in connection with the registration,
qualification, listing or sale of Registrable Shares.
5. Assignment or Loss of Warrant.
(a) The Holder of this Warrant shall be entitled, without obtaining the consent
of the Corporation, to assign its interest in this Warrant, or any of the
Warrant Shares, in whole or in part to any person, provided, however, that the
transferee, prior to any such transfer, provides the Corporation with a legal
opinion, in form and substance satisfactory to the Company, that such transfer
will not violate the Act or any applicable state securities or blue sky laws.
Otherwise without obtaining the prior written consent of the Company, Holder
shall not transfer or assign its interest in this Warrant, or any of the Warrant
Shares prior to exercise, in whole or in part to any transferee.
(b) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6. Reservation of Shares. The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise or exchange of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise or exchange of this Warrant.
All such shares shall be duly authorized and, when issued upon the exercise or
exchange of the Warrant in accordance with the terms hereof, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale (other than as
provided in the Company's articles of incorporation and any restrictions on sale
set forth herein or pursuant to applicable federal and state securities laws)
and free and clear of all preemptive rights.
7. Arbitration. In the event that a dispute arises between the Corporation and
the holder of this Warrant as to any matter relating to this Warrant, the matter
shall be settled by arbitration in Alameda County, California in accordance with
the Rules of the American Arbitration Association and the award rendered by such
arbitrator(s) shall not be subject to appeal and may be entered in any federal
or state court located in Alameda County having jurisdiction thereof, and
actions or proceedings shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers and the corporate seal hereunto affixed on this 9th
day of December, 1997.
VALUESTAR CORPORATION
/s/ JAMES STEIN
James Stein, President and CEO
/s/ BENJAMIN A. PITTMAN
Benjamin A. Pittman, Secretary
EXHIBIT 4.8
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.
VALUESTAR CORPORATION
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE __________ SHARES OF COMMON STOCK
THIS CERTIFIES THAT NEO OPTICS LTD. ("Holder") is entitled to purchase, on or
before December 31, 2002, ____________ (_________) shares of the common stock
("Common Stock") of VALUESTAR CORPORATION (the "Corporation") upon exercise of
this Warrant along with presentation of the full purchase price. The purchase
price of the common stock is equal to One Dollar and Twenty Five Cents ($1.25)
per share (the "Exercise Price"). This Warrant is granted for valuable
consideration received.
1. Exercise.
This Warrant may be exercised one time, in whole only, unless otherwise
permitted by the Corporation, on any business day on or before the expiration
date listed above by presentation and surrender hereof to the Corporation at its
principal office of a written exercise request and the Exercise Price in lawful
money of the United States of America in the form of a wire transfer or check,
subject to collection, for the Warrant Shares specified in the exercise request.
Upon receipt by the Corporation of an exercise request and representations,
together with proper payment of the Exercise Price, at such office, the Holder
shall be deemed to be the holder of record of the Warrant Shares,
notwithstanding that the stock transfer books of the Corporation shall then be
closed or that certificates representing such Warrant Shares shall not then be
actually delivered to the Holder. The Corporation shall pay any and all transfer
agent fees, documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the Warrant Shares. The Corporation may at
its discretion allow the Holder to exercise this Warrant on net issuance terms.
This Warrant is redeemable and callable upon 20 days written notice by the
Corporation to the Holder at the price of $0.01 per exercisable share provided
that the closing bid price of the Company's common stock is $5.00 or more for
ten consecutive trading days. The redemption shall be made by the Corporation in
writing (with proof of receipt) specifying the terms of redemption and advising
the Holder the final date to exercise this Warrant to prevent such redemption
and whether any net issuance terms are being offered by the Corporation.
2. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant.
The Exercise Price and the number of Shares purchasable upon the exercise of
this Warrant ("Warrant Shares") are subject to adjustment from time to time upon
the occurrence of the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a
distribution in shares of its Common Stock with respect to its
outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of
its shares of Common Stock;
1
<PAGE>
the Exercise Price in effect at the time of the record date of such dividend,
subdivision, combination, or reclassification shall be proportionately adjusted
so that Holder shall be entitled to receive the aggregate number and kind of
shares which, if this Warrant had been exercised prior to such event, Holder
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Corporation shall fix a record date for the issuance of rights,
options, or warrants or make a distribution of shares of Common Stock to all
(but not less than all) holders of its outstanding Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into shares of Common Stock) at a price per share (or having a conversion price
per share, if a security convertible into Common Stock) less than the market
price of the shares (based on the closing price on the record date on NASDAQ or
a listed securities exchange of the Corporation's Common Stock, or if no such
quote is available, the shareholders equity on the date of the last financial
statement divided by the total number of shares outstanding) (the "Market
Price"), the Exercise Price to be in effect after such record date shall be
determined by multiplying the then current Exercise Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial conversion
price of the convertible securities so to be offered) would purchase at such
Market Price and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of additional
shares of Common Stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible). Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in effect
if such record date had not been fixed.
(c) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise of
this Warrant (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger with a subsidiary or a continuing corporation), or in case of any sale or
conveyance to another entity of all or substantially all of the property of the
Corporation, then, as a condition of such reorganization, reclassification,
change, consolidation, merger, sale, or conveyance, the Corporation or such
successor or purchasing entity, as the case may be, shall forthwith provide to
Holder a supplemental warrant (the "Supplemental Warrant") which will make
lawful and adequate provision whereby Holder shall have the right thereafter to
receive, upon exercise of such Supplemental Warrant, the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock equal to the number
of Shares issuable upon exercise of this Warrant immediately prior to such
reorganization, reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph. The above provisions of this paragraph shall
similarly apply to successive reorganizations, reclassifications, and changes of
Common Stock and to successive consolidations, mergers, sales, or conveyances.
3. Restrictions on Transfer.
Holder has been advised and understands that the Warrants and the Warrant Shares
purchasable thereby are characterized as "restricted securities" under the
federal securities laws because they are being acquired from Corporation in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. Holder further understands that
the certificates evidencing the Warrant Shares will bear the following or
comparable legend: "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 or Regulation S under such Act."
The Holder understands that the Company may place, and may instruct any transfer
agent or depository for the Warrant Shares to place, a stop transfer notation in
the securities records in respect of the Warrant Shares.
4. Registration Rights.
2
<PAGE>
Holder shall have the right, at any time and from time to time until December
31, 2002, to include all of the shares purchased or purchasable upon the
exercise of this Warrant ( the "Registrable Shares") within any Registration
Statement of the Corporation filed by the Corporation covering shares of its
Common Stock other than a Registration Statement filed solely with respect to
any employee benefit plan of the Corporation or an offering solely related to an
acquisition or for which such Registrable Shares cannot be appropriately
registered. The Corporation shall promptly give written notice to Holder of any
intended registration of its Common Stock not less than forty-five (45) days
prior to the anticipated effective date of the Registration Statement, and
Holder shall, within fifteen (15) days of receipt thereof, notify the
Corporation of the number of Registrable Shares it desires to include in the
Registration Statement. The number of Registrable Shares which may be included
by the Holder in any such Registration Statement may be restricted by the
Corporation if, in the opinion of the Corporation's managing underwriter, the
number of shares proposed to be sold by the Holder and by the Corporation in
such offering exceeds the number of securities which can be sold in such
offering. In such event, the Registrable Shares of Holder to be included within
such Registration Statement shall not exceed the number approved for inclusion
therein by the Corporation and its managing underwriter. All costs or expenses,
incident to the registration, qualification or listing of such securities shall
be paid by the Corporation, and the Corporation shall comply with all reasonable
requests of Holder made in connection with the registration, qualification,
listing or sale of Registrable Shares.
5. Assignment or Loss of Warrant.
(a) The Holder of this Warrant shall be entitled, without obtaining the consent
of the Corporation, to assign its interest in this Warrant, or any of the
Warrant Shares, in whole or in part to any person, provided, however, that the
transferee, prior to any such transfer, provides the Corporation with a legal
opinion, in form and substance satisfactory to the Company, that such transfer
will not violate the Act or any applicable state securities or blue sky laws.
Otherwise without obtaining the prior written consent of the Company, Holder
shall not transfer or assign its interest in this Warrant, or any of the Warrant
Shares prior to exercise, in whole or in part to any transferee.
(b) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6. Reservation of Shares. The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise or exchange of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise or exchange of this Warrant.
All such shares shall be duly authorized and, when issued upon the exercise or
exchange of the Warrant in accordance with the terms hereof, shall be validly
issued, fully paid and nonassessable, free and clear of all liens, security
interests, charges and other encumbrances or restrictions on sale (other than as
provided in the Company's articles of incorporation and any restrictions on sale
set forth herein or pursuant to applicable federal and state securities laws)
and free and clear of all preemptive rights.
7. Arbitration. In the event that a dispute arises between the Corporation and
the holder of this Warrant as to any matter relating to this Warrant, the matter
shall be settled by arbitration in Alameda County, California in accordance with
the Rules of the American Arbitration Association and the award rendered by such
arbitrator(s) shall not be subject to appeal and may be entered in any federal
or state court located in Alameda County having jurisdiction thereof, and
actions or proceedings shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers and the corporate seal hereunto affixed on this
12th day of December 1997.
VALUESTAR CORPORATION
/s/ JAMES STEIN
James Stein, President and CEO
/s/ BENJAMIN A. PITTMAN
Benjamin A. Pittman, Secretary
3
EXHIBIT 4.9
NOTE #97A-
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS, AND IS A
"RESTRICTED SECURITY" AS THAT TERM IS DEFINED IN RULE 144 UNDER THE ACT. THIS
NOTE MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THAT
CERTAIN SUBSCRIPTION AGREEMENT THEREFOR BETWEEN THE COMPANY AND THE ORIGINAL
HOLDER HEREOF.
(ALL AMOUNTS IN U.S. DOLLARS)
VALUESTAR CORPORATION
12% SUBORDINATED PROMISSORY NOTE
Due June 30, 2000
Note Date: _________________ US$_____________. 00
Alameda, California
FOR VALUE RECEIVED, ValueStar Corporation, the undersigned Colorado
corporation (together with all successors, the "Company"), hereby promises to
pay to the order of
Payee: _______________________________
or his, her or its successors or assigns
(collectively, "Noteholder") at
Address:
or at such other address or addresses as Noteholder may subsequently designate
in writing to the Company, the principal sum of ________________ and NO/100
Dollars ($______________.00), due and payable in one installment on June 30,
2000 ("Maturity Date"), plus simple interest thereon at the rate of twelve
percent (12.00%) per annum, in lawful monies of the United States of America.
Interest shall accrue and be payable monthly on the last day of each month,
commencing on the last day of the first full month following the issuance of
this Note, until this Note is paid in full ("Interest Date"). If an Interest
Date or the Maturity Date should fall on a weekend or national holiday, payment
shall be due on the following business day. This Note is one of a duly
authorized issue of Notes of the Company designated as its 12% Subordinated
Promissory Notes (herein called the "Notes"), limited in aggregate principal
amount to $1,000,000.
1. Any payment shall be deemed timely made if received by Noteholder
within fifteen (15) calendar days of the due date. Payments received shall be
imputed first to late or penalty charges, if any, then due, next to interest
payments then due, and next to the remaining unpaid principal balance.
An "Event of Default" occurs if (a) the Company does not make the
payment of interest or principal of this Note when the same becomes due and
payable and such default shall continue for a period of fifteen (15) calendar
days, (b) the Company fails to comply with any of its other agreements in this
Note that do not otherwise have separate remedies or provisions and such failure
continues for the period and after the notice specified below, (c) pursuant to
or within the meaning of any Bankruptcy Law (as hereinafter defined), the
Company: (i) commences a voluntary case; (ii) consents to the entry of an order
for relief against it in an involuntary case; (iii) consents to the appointment
of a Custodian (as hereinafter defined) of it or for all or substantially all of
its property or (iv) makes a general assignment for the benefit of its
<PAGE>
creditors or (v) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (A) is for relief against the Company in an
involuntary case; (B) appoints a Custodian of the Company or for all or
substantially all of its property or (C) orders the liquidation of the Company,
and any order or decree remains unstayed and in effect for a period of sixty
(60) days. As used herein, the term "Bankruptcy Law" means Title 11 of the
United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
A default above is not an Event of Default until the holders of at
least 25% in aggregate principal amount of the Notes then outstanding notify the
Company of such default and the Company does not cure it within ninety (90) days
after receipt of such notice, which must specify the default, demand that it be
remedied and state that it is a "Notice of Default." If an Event of Default
occurs and is continuing, the Noteholder hereof by notice to the Company, may
declare the principal of and accrued interest on this Note to be due and payable
immediately; provided, however, that the holders of at least 51% in aggregate
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annual such declaration and its consequences.
2. The Company may prepay this Note at any time and from time to time,
in whole or in part, without any penalty or premium and without the prior
written agreement of Noteholder. Any prepayment of this Note shall be applied
first against any accrued interest and then against principal. Upon payment in
full of the principal amount of this Note and interest thereon, the Noteholder
shall surrender this Note for cancellation.
3. "Senior Indebtedness" means the principal of and premium, if any,
and interest on indebtedness of the Company or any subsidiary, whether
outstanding on the date of issuance of this Note or thereafter created, incurred
or assumed for money borrowed from (a) banks, insurance companies, financial
institutions or other persons which regularly engage in the business of lending
money, unless the instrument creating such indebtedness shall specifically
designate such indebtedness as not being senior in right of payment to the
Notes, or (b) such other persons as to which indebtedness the Board of Directors
of the Company shall designate as senior in right of payment to the Notes.
The Company agrees, and each Noteholder, by acceptance hereof likewise
agrees, expressly for the benefit of the present and future holders of Senior
Indebtedness, that, except as otherwise provided herein, upon (i) an event of
default under any Senior Indebtedness, or (ii) any dissolution, winding up or
liquidation of the Company, whether or not in bankruptcy, insolvency or
receivership proceeding, the Company shall not pay, and the Noteholder shall not
be entitled to receive, any amount in respect of the principal and interest of
this Note unless and until the Senior Indebtedness shall have been paid or
otherwise discharged. Upon (A) an event of default under any Senior
Indebtedness, or (B) any dissolution, winding up or liquidation of the Company,
any payment or distribution of assets of the Company, which the Noteholder would
be entitled to receive but for the provisions hereof, shall be paid by the
Custodian directly to the holders of Senior Indebtedness ratably according to
the aggregate amounts remaining unpaid on Senior Indebtedness after giving
effect to any concurrent payment or distribution to the holders of any Senior
Indebtedness. Subject to the payment in full of the Senior Indebtedness and
until this Note is paid in full, the Noteholder shall be subrogated to the
rights of the holders of the Senior Indebtedness (to the extent of payments or
distributions previously made to the holders of Senior Indebtedness pursuant
hereto) to receive payments or distributions of assets of the Company applicable
to the Senior Indebtedness.
In the event that any Event of Default shall occur and as a result this
Note is declared due and payable, and such declaration shall not have been
rescinded or annulled, the Company shall not make any payment on account of the
principal of or interest on this Note unless at least ninety (90) days shall
have elapsed after said declaration and unless all principal of and interest on
Senior Indebtedness due at the time of such payment (whether by acceleration of
the maturity thereof or otherwise) shall first be paid in full.
Nothing contained in this Note is intended to impair, as between the
Company, its creditors (other than the holders of Senior Indebtedness) and the
Noteholder of this Note, the unconditional and absolute obligation of the
Company to pay the principal of and interest on this Note or affect the relative
rights of the holder of this Note and the other creditors of the Company, other
than the holders of Senior Indebtedness. Nothing in this Note shall prevent the
holder of this Note from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any, of
the holders of Senior Indebtedness in respect to cash, property or securities of
the Company received upon the exercise of any such remedy.
2
<PAGE>
4. This Note is being issued in conjunction with certain warrants. A
portion of the original issue price of this investment unit (consisting of this
Note and its associated warrants) has been allocated to these warrants. The
original issue price of this Note is therefore less than its principal amount.
Because the excess of the principal amount of this Note over its original issue
price is less than (a) one-quarter of one percent of this Note's principal
amount (b) multiplied by the number of complete years to this Note's maturity,
this Note will not have "original issue discount" as that phrase is defined for
United States income tax purposes. Any Noteholder may contact the Company's
Chief Financial Officer or Treasurer at its principal office (or such other
address as the Company shall subsequently furnish to the Noteholder) for further
information concerning the computation of original issue discount under the
terms of this Note.
5. If this Note becomes worn, defaced or mutilated but is still
substantially intact and recognizable, the Company or its agent may issue a new
Note in lieu hereof upon its surrender. Where the Noteholder claims that the
Note has been lost, destroyed or wrongfully taken, the Company shall issue a new
Note of like tenor in place of the original Note if the Noteholder so requests
by written notice to the Company together with an affidavit of the Noteholder
setting forth the facts concerning such loss, destruction or wrongful taking and
such other information in such form with such proof or verification as the
Company may request. The Company in addition may require, at its sole
discretion, indemnification and/or an indemnity bond in such amount and issued
by such surety as the Company deems satisfactory.
6. If the indebtedness represented by this Note or any part thereof is
collected in bankruptcy, receivership or other judicial proceedings or if this
Note is placed in the hands of attorneys for collection after default, the
Company agrees to pay, in addition to the principal and interest payable
hereunder, reasonable attorneys' fees and costs incurred by the Noteholder.
7. Any notice, demand, consent or other communication hereunder shall
be in writing addressed to the Company at its principal office or, in the case
of Holder, at Holder's address appearing above, or to such other address as such
party shall have theretofore furnished by like notice, and either served
personally, sent by express, registered or certified first class mail, postage
prepaid, sent by facsimile transmission, or delivered by reputable commercial
courier. Such notice shall be deemed given (a) when so personally delivered, or
(b) if mailed as aforesaid, five (5) days after the same shall have been posted,
or (c) if sent by facsimile transmission, as soon as the sender receives written
or telephonic confirmation that the message has been received and such facsimile
is followed the same day by mailing by prepaid first class mail, or (d) if
delivered by commercial courier, upon receipt.
8. The Company hereby waives present, demand for performance, notice of
non-performance, protest, notice of protest and notice of dishonor. No delay on
the part of Noteholder in exercising any right hereunder shall operate as a
waiver of such right or any other right.
9. This Note shall be governed by and construed in accordance with the
laws of the State of California applicable to contracts between residents of
such state entered into and to be performed entirely within such state.
10. Each provision of this Note shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Note is held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of this Agreement.
IN WITNESS WHEREOF, the undersigned Company has executed this Note and has
affixed hereto its corporate seal.
VALUESTAR CORPORATION
By /s/ JAMES STEIN
James Stein, President and CEO
3
EXHIBIT 4.10
Warrant #97A-_____
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION
IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH HEREIN AND IN THAT CERTAIN SUBSCRIPTION
AGREEMENT THEREFOR BETWEEN THE COMPANY AND THE ORIGINAL HOLDER HEREOF.
VALUESTAR CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, VALUESTAR CORPORATION, a
Colorado corporation (the "Company"), hereby grants to __________________
("Holder") the right to purchase from the Company up to (_____) shares of the
Common Stock of the Company (the "Warrant Shares"), subject to the following
terms and conditions:
1. Series. This Warrant is one of a duly authorized series of warrants
of the Company (which are identical except for the variations necessary to
express the identification numbers, names of the holder, number of common shares
issuable upon exercise thereof and warrant issue dates) designated as its "1997
Series A Warrants."
2. Term. This Warrant may be exercised in whole at any time during the
period from the date of issuance of this Warrant until 5:00 p.m., California
time, on December 31, 2000 (the "Exercise Period").
3. Purchase Price. The purchase price for each Warrant Share
purchasable hereunder shall be One and 25/100 United States Dollars (U.S. $1.25)
(the "Warrant Exercise Price").
4. Exercise of Warrant. The purchase rights represented by this Warrant
may be exercised by the Holder, in whole or in part, at any time and from time
to time before the end of the Exercise Period by surrender of this Warrant at
the principal office of the Company in Alameda, California (or such other office
or agency of the Company as may be designated by notice in writing to the Holder
at the address of the Holder appearing on the books of the Company), together
with the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder accompanied by payment in full of the amount of the aggregate
Warrant Exercise Price in immediately available funds in United States Dollars.
Certificates for shares purchased hereunder shall be delivered to the Holder
within thirty (30) business days after the date on which this Warrant shall have
been exercised as aforesaid, but Holder shall be deemed the record owner of such
Warrant Shares as of and from the close of business on the date on which this
Warrant shall be surrendered.
5. Fractional Interest. The Company shall not be required to issue any
fractional shares on the exercise of this Warrant.
6. Redemption of Warrants. The Company may elect on one occasion, by
written notice as provided herein (the "Company Notice"), to redeem all
outstanding Warrants including this Warrant, in whole but not in part, on a date
(the "Redemption Date") fixed by the Company and which shall be a Trading Day
(as defined below) at a price of $.01 per outstanding Warrant Share (the
"Redemption Price") at such time as the Closing Price (as defined below) of the
Company's Common Stock for the ten (10) consecutive Trading Days (as defined
below) immediately preceding the date of the Company Notice equals or exceeds
four hundred percent (400%) of the Warrant Exercise Price; provided, however,
that this Warrant may be exercised at any time prior to 5:00 p.m., California
time, on the business day immediately preceding the Redemption Date.
<PAGE>
For purposes hereof, (i) the term "Trading Day" shall mean any day on
which securities are traded on the applicable securities exchange or in the
applicable securities market; and (ii) the term "Closing Price" in respect of a
Trading Day shall mean the reported last sale price regular way or, in the case
no such reported sales take place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock of the Company is listed
or admitted to trading or, if not listed or admitted to trading on any national
securities exchange, on the NASDAQ Stock Market or, if not admitted to trading
or quoted on the NASDAQ Stock Market, the average of the closing bid and asked
prices in the over-the-counter market as furnished by any member firm of a
national securities exchange or the NASDAQ Stock Market selected from time to
time by the Company for that purpose.
7. Warrant Confers No Rights of Shareholder. Holder shall not have any
rights as a shareholder of the Company with regard to the Warrant Shares prior
to actual exercise resulting in the purchase of the Warrant Shares.
8. Investment Representation. Neither this Warrant nor the Warrant
Shares issuable upon the exercise of this Warrant have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any
applicable state securities laws. Holder acknowledges by acceptance of this
Warrant that (a) it has acquired this Warrant for investment and not with a view
toward distribution; (b) it has a pre-existing personal or business relationship
with the Company, or its executive officers, or by reason of its business or
financial experience it has the capacity to protect its own interests in
connection with the transaction; and (c) except as so notified to the Company in
writing, it is an accredited investor as that term is defined in Regulation D
promulgated under the Securities Act. Holder agrees that any Warrant Shares
issuable upon exercise of this Warrant will be acquired for investment and not
with a view toward distribution; and acknowledges that to the extent such
Warrant Shares will not be registered under the Securities Act and applicable
state securities laws, that such Warrant Shares may have to be held indefinitely
unless they are subsequently registered or qualified under the Securities Act
and applicable state securities laws; or, based on an opinion of counsel
reasonably satisfactory to the Company, an exemption from such registration and
qualification is available. Holder, by acceptance hereof, consents to the
placement of the following restrictive legends, or similar legends, on each
certificate to be issued to Holder by the Company in connection with the
issuance of such Warrant Shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN THAT CERTAIN SUBSCRIPTION
AGREEMENT THEREFOR BETWEEN THE CORPORATION AND THE ORIGINAL HOLDER
HEREOF.
9. Reservation of Shares. The Company agrees at all times during the
Exercise Period to have authorized and reserved, for the exclusive purpose of
issuance and delivery upon exercise of this Warrant, a sufficient number of
shares of its Common Stock to provide for the exercise of the rights represented
hereby.
10. Adjustment for Re-Classification of Capital Stock. If the Company
at any time during the Exercise Period shall, by subdivision, combination or
re-classification of securities, change any of the securities to which purchase
rights under this Warrant exist under the same or different number of securities
of any class or classes, this Warrant shall thereafter entitle the Holder to
acquire such number and kind of securities as would have been issuable as a
result of such change with respect to the Warrant Shares immediately prior to
such subdivision, combination or re-classification. If shares of the Company's
common stock are subdivided into a greater number of shares of common stock, the
purchase price for the Warrant Shares upon exercise of this Warrant shall be
proportionately reduced and the Warrant Shares shall be proportionately
increased; and conversely, if shares of the Company's common stock are combined
into a smaller number of common stock shares, the price shall be proportionately
increased, and the Warrant Shares shall be proportionately decreased.
11. Public Offering Lock-Up. In connection with any public registration
of this Company's securities, the Holder (and any transferee of Holder) agrees,
upon the request of the Company or the underwriter(s) managing such
<PAGE>
underwritten offering of the Company's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of
this Warrant, any of the shares of Common Stock issuable upon exercise of this
Warrant or any other securities of the Company heretofore or hereafter acquired
by Holder (other than those included in the registration) without the prior
written consent of the Company and such underwriter(s), as the case may be, for
a period of time not to exceed on hundred eighty (180) days from the effective
date of the registration. Upon request by the Company, Holder (and any
transferee of Holder) agrees to enter into any further agreement in writing in a
form reasonably satisfactory to the Company and such underwriter(s). The Company
may impose stop-transfer instructions with respect to the securities subject to
the foregoing restrictions until the end of said 180-day period. Any shares
issued upon exercise of this Warrant shall bear an appropriate legend
referencing this lock-up provision.
12. Registration Rights. (a) If, at any time during the Exercise
Period, the Company proposes to prepare and file any registration statements
covering its Common Stock (in either case, other than in connection with a
merger or acquisition, pursuant to Form S-8 or any successor form, or pursuant
to any other form or type of registration in which Registrable Securities (as
defined below) cannot be appropriately included) (collectively, the
"Registration Statements"), it will give written notice as provided herein at
least thirty (30) days prior to the filing of each such Registration Statement
to the Holders of the Warrants and/or Warrant Shares of its intention to do so.
If the Holders of the Warrants and/or Warrant Shares notify the Company within
twenty (20) days after receipt of any such notice of its or their desire to
include the shares of Common Stock issuable upon exercise of the Warrant or the
Warrant Shares (collectively, the "Registrable Securities") in such proposed
registration statement, the Company shall afford the Holders of the Warrant
and/or Warrant Shares the opportunity to have any such Registrable Securities
registered under such registration statement at the Company's sole cost and
expense.
(b) Notwithstanding the provisions hereof, the Company shall have the
right at any time after it shall have given written notice pursuant hereto
(irrespective of whether a written request for inclusion of any such securities
shall have been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the effective
date thereof.
(c) Notwithstanding any other provision of this Section, if the
underwriter managing such registration notifies the Holders in writing that
market or economic conditions limit the amount of securities which may
reasonably be expected to be sold, the Holders of such Registrable Securities
will be allowed to register their Registrable Securities pro rata based on the
number of shares of Registrable Securities held by such Holders, respectively.
No Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
(d) Each Holder of Warrants and Warrant Shares to be sold pursuant to
any Registration Statement (each, a "Distributing Holder") shall severally, and
not jointly, indemnify and hold harmless the Company, its officers and
directors, each underwriter and each person, if any, who controls the Company
and such underwriter, against any loss, claim, damage, expense or liability,
joint or several, as incurred, to which any of them may become subject under the
Securities Act or any other statute or at common law, in so far as such loss,
claim, damage, expense or liability (or actions in respect thereof) arises out
of or is based upon any untrue statement or alleged untrue statement of any
material fact contained in any such Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
Distributing Holder specifically for use therein. Such Distributing Holder shall
reimburse the Company, such underwriter and each such officer, director or
controlling person for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such liability, as
incurred. Notwithstanding the foregoing, such indemnity with respect to such
preliminary prospectus or such final prospectus shall not inure to the benefit
of the Company, its officers or directors, or such underwriter (or such
controlling person of the Company or the underwriter) if the person asserting
any such loss, claim, damage, expense or liability purchased the securities that
are the subject thereof and did not receive a copy of the final prospectus (or
the final prospectus as then amended, revised or supplemented) at or prior to
the time such furnishing is required by the Securities Act in any case where any
such untrue statement or omission of a material fact contained in the
preliminary prospectus was corrected in the final prospectus (or, if contained
in the final prospectus, was subsequently corrected by amendment, revision or
supplement).
13. Assignment. With respect to any offer, sale or other disposition of
this Warrant or any underlying securities, the Holder will give written notice
to the Company prior thereto, describing briefly the manner thereof, together
with a written opinion of such Holder's counsel, to the effect that such offer,
sale or other distribution may be effected
<PAGE>
without registration or qualification (under any applicable federal or state law
then in effect). Furthermore, no such transfer shall be made unless the
transferee meets the same investor suitability standards set forth in Section 8
of this Warrant. Promptly upon receiving such written notice and reasonably
satisfactory opinion, if so requested, the Company, as promptly as practicable,
shall notify such Holder that such Holder may sell or otherwise dispose of this
Warrant or the underlying securities, as the case may be, all in accordance with
the terms of the written notice delivered to the Company. If a determination has
been made pursuant to this Section 13 that the opinion of counsel for the Holder
is not reasonably satisfactory to the Company, the Company shall so notify the
Holder promptly after such determination has been made. Each Warrant thus
transferred shall bear the same legends appearing on this Warrant, and
underlying securities thus transferred shall bear the legends required by
Section 8. The Company may impose stop-transfer instructions in connection with
such restrictions. Subject to any restrictions on transfer described elsewhere
herein, the rights and obligations of the Company and the Holder of this Warrant
shall be binding upon and benefit the successors, assigns, heirs, administrators
and transferees of the parties hereto.
14. Notice. Any notice, demand, consent or other communication
hereunder shall be in writing addressed to the other party at its principal
office or, in respect of Holder, as its address as shown on the books of the
Company, or to such other address as such party shall have theretofore furnished
by like notice, and either served personally, sent by express, registered or
certified first class mail, postage prepaid, sent by facsimile transmission, or
delivered by reputable commercial courier. Such notice shall be deemed given (i)
when so personally delivered, or (ii) if mailed as aforesaid, five (5) days
after the same shall have been posted, or (iii) if sent by facsimile
transmission, as soon as sender receives written or telephonic confirmation that
the message has been received and such facsimile is followed the same day by
mailing by prepaid first class mail, or (iv) if delivered by commercial courier,
upon receipt.
15. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
16. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Warrant, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
17. Descriptive Headings. The headings used herein are descriptive only
and for the convenience of identifying provisions, and are not determinative of
the meaning or effect of any such provisions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly authorized officer this ____ day of ____________, 19___.
VALUESTAR CORPORATION
/s/ JAMES STEIN
James Stein, President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for quarter ended December 31, 1997 included in the
quarterly report 10QSB and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 172,427
<SECURITIES> 0
<RECEIVABLES> 337,190
<ALLOWANCES> 46,379
<INVENTORY> 7,200
<CURRENT-ASSETS> 470,438
<PP&E> 52,410
<DEPRECIATION> 5,198
<TOTAL-ASSETS> 671,424
<CURRENT-LIABILITIES> 686,144
<BONDS> 250,000
0
0
<COMMON> 2,148
<OTHER-SE> (266,868)
<TOTAL-LIABILITY-AND-EQUITY> 671,424
<SALES> 0
<TOTAL-REVENUES> 791,693
<CGS> 0
<TOTAL-COSTS> 254,258
<OTHER-EXPENSES> 984,407
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,197
<INCOME-PRETAX> (462,169)
<INCOME-TAX> 0
<INCOME-CONTINUING> (462,169)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (462,169)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
